Abstract
This paper reviews the test results on the profitability of mechanical trading rules based on technical analysis as a challenge to the belief that successive price movements are random. This paper reports that mechanical trading rules can generate abnormal returns above that of buy and hold strategy for FKLI, FCPO, Nikkei Futures and Hang Seng Futures for the periods tested. This study devises a new mechanical trading model, BBZ using standard deviation. This paper proposes that BBZ attempts to capture large price movements which happen beyond 1 standard deviation. The mechanical buy signal is above +1 standard deviation and sell below -1 standard deviation. For the period of 12/15/1995-12/31/2008, BBZ yields a return of 1048.6 points for FKLI compares with buy and hold strategy which yields a negative return of -110.5 points. 2008 returns for FCPO, Nikkei Futures and Hang Seng Futures are 1,119, 3,670 and 7,877 respectively.